EU seeks to clamp down on financial market excesses

MEPs last night (16 April) voted to curb high-frequency trading and speculation on foodstuffs as part of revised EU rules for financial markets and trading.

The rules "will establish a safer, more transparent and more responsible financial system and restore investor confidence in the wake of the financial crisis”, Michel Barnier, the European commissioner for internal market and financial services, who proposed the revision back in October 2011, said yesterday.

The legislation introduces oversight and transparency rules for a host of financial transactions, from executing orders on shares and exchange traded funds to trading in derivatives and bonds. The Paris-based European Securities and Markets Authority – an EU regulatory agency – will receive greater powers to monitor transactions.

The EU has also moved to regulate high-frequency traders, who buy and sell at high speed using complex, and often opaque, algorithms. It is estimated that between 50% and 75% of share orders in the United States are made using high-speed computer programmes. But occasional scares have brought home the potential dangers of high-frequency trading. In August 2012, Knight Capital Partners, the largest trader in US shares, almost collapsed after a bug in its programming caused it to lose $440 million (€317m).

Despite opposition from some member states, led by the United Kingdom, during the negotiations, MEPs led by Arlene McCarthy, a British centre-left MEP, pushed through rules on capping speculative trades relating to commodities.

“Speculation on foodstuff markets has had devastating consequences in the developing world, compounding food insecurity for the world's poorest,” said Sven Giegold, a German Green MEP.

Member states were able to water down parts of the Commission’s original proposals, in particular regarding transparency in off-exchange trading and introducing cooling-off periods between trades.